Renters Rights Bill – the student snag

The Renters Rights Bill, one of the most significant reforms of the legal regime around the private rented sector for decades, is now at the committee stage in the House of Lords and could become law as early as April.

With the bill in such advanced stages, the scope for industry lobby groups to secure favourable amendments to the legislation is narrowing by the day and the bill is unlikely to change materially before it passes into the statute books.

This is likely to concern many private landlords for whom the current draft of the bill represents a significant overhaul of the leasing, asset management and re-letting process for private rental accommodation. However, it also affords them valuable time before the bill becomes law to factor the new changes into their strategies and thoroughly understand the various facets of the draft legislation which will impact the balance of power between landlords and tenants.

One of the most significant amendments made to the bill during its passage through the Commons is the introduction of a clear prohibition on landlords requesting rent more than one month in advance, something that was left open in the bill as initially introduced to the Commons. While this doesn’t bar landlords from requiring a security deposit of five or six weeks’ rent, as is permitted under the current regime, the ban on long-term ‘rent up front’ practices represents a marked departure from many private landlords’ preferred operating procedure.

The government is of the opinion that requesting significant amounts of rent in advance is another unwelcome contributor to ‘rental bidding’ and, in their words, the amended bill will “crack down on the small number of unscrupulous landlords who are making the most out of the housing crisis by asking some tenants to pay huge amounts in rent before being able to move into a home”.

This is stark wording and, at face value, seems like a clear win for tenants. However, this provision is likely to have unintended consequences which disproportionately impact a vital constituent of the UK rental market: overseas students.

Overseas students are less likely than their domestic counterparts to have a robust credit history and often overcome this challenge by being willing to pay several months of rent in advance. The new provision in the Renters Rights Bill cuts off this avenue for overseas renters and creates significant uncertainty for landlords considering tenancies with prospective international residents.

The explanatory notes to the bill carve out an exemption for purpose-built student accommodation landlords, who will be exempt from the ban on ‘rent in advance’ arrangements since these tenancies are outside the assured tenancy regime, provided they are registered for government-approved codes. This is expected to apply to educational institutions (such as universities and colleges) as well as PBSA landlords when acting as accommodation providers.

The private rented sector has long been lobbying for greater parity with the regulation of student accommodation to avoid a two-tier system preferencing dedicated PBSA providers. However, the current draft of the bill, which is unlikely to materially evolve before it passes into law, looks set to disappoint on this front, with PBSA providers also being exempt from the abolition of fixed term tenancies brought in by the bill.

PBSA operators may, by virtue of the exemption carved out in the legislation, hold a commanding position when it comes to capitalising on international student demand for UK housing, leveraging ‘rent up front’ provisions to mitigate the risk inherent in leasing space to overseas students, leaving HMO and PRS operators to fight amongst themselves for the residual domestic student base.

As the bill moves closer to its final form, providers of private rented accommodation should monitor these developments closely and ensure their business is prepared for the new regulation and re-shaped market that will follow the bill. Events such as UKREiiF will be crucial for sharing knowledge among major industry players for whom the opportunity to collaborate and gauge market sentiment will be a valuable tool as the bill moves closer to the statute books.

Armel Elaudais is a partner and Adam Baker is a senior associate at Fladgate